Cincinnati pension amendment wording alarms some

Fears are Issue 4 will lead to 'years of litigation'

Oct. 12, 2013

Cincinnati City Hall / The Enquirer/Joseph Fuqua II

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The proposed charter amendment to revamp Cincinnati’s city pension system would essentially eliminate the existing system.

But some legal experts say language in the proposed amendment, if passed, could lead to a legal crisis – and a likely legal battle – over how City Council could or would raise revenues and or taxes.

“This indeed would lead to a charter crisis and several lawsuits and years of litigation, and I’m saying this without a dog in this fight,” said Don Mooney, a partner at Downtown law firm Ulmer Berne, who has worked on charter issues for Cincinnati and other cities. “There are several places where this amendment would require compliance with differing directions and the courts would probably have to settle it.”

Supporters of the amendment, also known as Issue 4, claim there are few contradictions within the proposal.

But amendment opponents say the language is so confusing it almost begs for lawsuits.

“This must have been written at happy hour of the tea party convention,” said Paul De Marco, a Downtown lawyer and a member of Cincinnati For Pension Responsibility, one of two political committees that have been formed to oppose Issue 4. “It contradicts itself so many times. Never in my career have I seen such a poorly drafted piece of proposed legislation that was obviously written to ensure lawsuits.”

At issue is the proposed amendment’s requirement that the city pay off its $870 million pension liability within 10 years. The amendment states that if an audit shows the city can’t pay off those liabilities at any time within 10 years, “the City must forthwith create sufficient cost savings or new revenue that ... will meet those forecasted future obligations.”

Many involved in the pension debate have interpreted that to mean the liability needs to be gone in 10 years if Issue 4 passes. That, in turn, means an $87 million annual hit to the city’s $360 million-plus operating budget. The city now pays about $32 million annually toward its pension liabilities out of the operating fund, a figure expected to climb to nearly $40 million over the next five years.

Yet the amendment also states that “to afford the retirement benefits of past or current City employees, taxes and fees should not be raised, and vital City services should not be reduced or jeopardized.”

Any move to raise the operating portions of the city personal income tax or impose a solid waste user fee would have to be approved by referendum. Cincinnati also is near the cap of what it can collect from property taxes for operating purposes; raising the cap would most likely require voter approval, too.

In addition to that potential conflict comes this question: What would happen if the city needs new taxes to pay off the pension liability and voters turned down a tax increase?

Mooney says some legal precedent shows the most recently passed charter amendment takes precedence over previous laws, meaning City Council may take it upon itself to raise taxes without a vote to help fill the deficit.

“There very well could be a move to try and tax without a vote, citing this (amendment) as the reason to do so,” Mooney said. And if city officials tried to cut services to make up for the required pension spending, more lawsuits could emerge over what is a “vital service,” Mooney says.

Other experts say that state law takes precedence, requiring there to be votes on income tax increases. But even so, the amendment makes things murky, said Mark VanderLaan of the Downtown firm Dinsmore.

“No matter what, you are probably going to end up in court to figure out how to comply with this,” said VanderLaan, who serves as the city solicitor for Blue Ash and who has done legal work for the city of Cincinnati. “It also could be that someone could find the charter amendment unconstitutional somehow.”

Gary Greenberg, spokesman for the Cincinnati for Pension Reform committee that put Issue 4 on the ballot, said in an email that state law regarding taxing power would take precedence. He added that the term “new revenue” could mean new taxes “but is far broader.”

“It could also include bond sales, asset sales and incentivized private sector job growth (adding to the city’s tax coffers),” said Greenberg, also a downtown-based labor lawyer.

As for the apparent conflict within the amendment itself, Greenberg said that when the two sections are read together, the amendment “means that taxes and fees can be raised raised or vital City services cannot be cut except as a very last resort to fulfill the obligations.” “Vital services” follow generally the same guidelines the federal government followed when determining “essential personnel” during the current government shutdown, Greenberg said.

One thing is for sure: City officials are preparing for the complexity of implementing the amendment. “There is a way to read this that it does mandate either cutting services or raising taxes, and puts paying off the pension as the top priority above all else,” said Cincinnati deputy solicitor Aaron Herzig. “Do I think it supersedes the requirement that major tax increases can only be as a will of the people? Some people could argue that. But that is speculation until we actually have it in front of us.” ⬛